Selling a financial practice doesn’t have to mean giving up control. In fact, one of the most effective ways to take value out of a practice while staying actively involved is to merge with another firm. A merger with the right firm can bring fresh talent, new ideas and increased capital to move the practice forward.

Merging a practice comes with its own set of complications, though. A successful merger requires compatible cultures, clear communication, and an agreed upon strategy for firm integration and leadership. A merger that lacks any of those elements can have long-term consequences for all parties involved. A merger can be very beneficial, if it’s executed properly.

What to look for in a merger partner

A successful firm doesn’t necessarily make for an ideal merger partner. There are numerous qualities you should look for before entering into formal discussions. One of the most important traits is whether the firm possesses qualities that can benefit your practice. Maybe the firm has expertise in a certain area that you lack. It could be that a firm has service capabilities that you can’t currently provide to your clients. It could be something as simple as a firm having strong leadership in place that could handle the big picture items so you can focus on working with clients. Know what you want out of the merger and do your due diligence to find it.

It’s also important to find a firm that is culturally aligned with your practice. If you keep a loose, semi-casual office, there are bound to be bumps in the road if you merge with a corporate, buttoned-down firm. Similarly, the merger partner should have views compatible to you own on things like client management, talent recruitment, and long-term goals. Differences in values and goals are very difficult to overcome, regardless of how profitable the merger may be.

Common merger pitfalls and how to avoid them

If you’ve ever been involved in a merger then you probably already know that no merger ever goes exactly according to plan. There are too many moving parts to meet every objective on schedule. Avoid setting artificial deadlines on merger and integration objectives. It’s okay to set goals but keep them flexible.

It’s also important to enter the integration process with a plan in place. Staff members from both firms will likely be concerned about their future with the new merged practice. You can lift the uncertainty by laying out a clear plan at the beginning of the process.

Just as you should have an integration plan, it’s also important to have an organizational chart that clearly defines who will fill which leadership roles. It’s been said that company with two leaders actually has no leaders. Know your new role from the outset so there’s no confusion as to who is captaining the ship.

Finally, get everything in writing. Mergers can and do fall apart. Any number of things can happen after the fact that may make one or both firms decide that the merger wasn’t a great idea. Develop a written merger agreement that covers everything from compensation to leadership structure to integration process. Also include a written process for how disputes and disagreements will be settled and how the merger will be unwound should things reach that point.

A merger can be a very effective way to infuse your firm with fresh ideas and capital. However, a merger gone wrong can set your practice back substantially. Do your due diligence before entering negotiations and take your time to find the ideal fit.

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